Why is ANYONE considering buying a house right now in this market unless you have to? (Chicago: refinance, credit)

[Lookout Kid]

Bernanke has a tough job. Greenspan caused the housing bubble by keeping interest rates really low for a very long period of time. The demand for mortgage-backed securities spiked because rates of return were so low on traditional bonds. The gigantic pool of investment money from people all over the world needed safe investments, and Greenspan effectively cut off traditional bonds as an investment choice. So the demand for mortgage-backed securities (mortgages bundled together into securities) shot up to extreme levels, and banks simply couldn't sell enough mortgages to keep up with the demand. This is why lending standards were relaxed. And the low interest rates also helped make homes more affordable, and a vicious cycle basically fed itself like a firestorm.

Why did Bear Stearns go down? Because they were the biggest player in this mortgage-backed securities scam. They were the ones bundling these sub-prime mortgages and selling them to investors as "safe investments like cash in the bank". Untold billions of investment dollars have been lost and the bank failures have just begun. Did you hear the news about Citibank today? NOT GOOD my friends. There are a lot of people out there who think they have a lot more money than they actually do. The foreclosures are a much bigger problem than they initially appear to be... People losing their homes is only one half of the equation. Banks are collapsing around the world, and not all of this money is FDIC insured!

Bernanke inherited this mess from Greenspan, and now he's in the unfortunate position of having to fix it all. Where does Bush fit in to this? Well Republicans in general have been loosening regulations on the banking industry for years. Clinton went along with them in the 90s, so he bears just as much responsibility. But to say that Republicans are somehow these responsible stewards of the economy is completely ridiculous. Sure, some people do quite well under Republican policies. The majority do not.

[Avengerfire]

Since when is this thread about Barack Obama and his "fans" appointing him greatness and about Bush haters exuding his "worst president since Hoover" spiel.

This thread has been ripe to be closed for a long time. This thread has been way off topic for a long time.

How sad.

[chet everett]

The drift is getting worse...

Times like this it is often helpful to try to remember what I have just been reflecting on -- cycles.

35 years ago the country faced some challenges under a Fed Chairmen that I doubt is remembered by more than a handful of people: Arthur F. Burns. Under his reign the gold standard went quietly into the dustbin of history.

I have no allusions that having that system was somehow perfect, but I do think that there is some evidence that we are facing a new monetary standard: black gold, Texas tea, Saudi serum. It has worked its way into the speculative markets, we are addicted to it in too many ways.

If anybody can remember the snail like pace of the silver horde built up by Hunt brothers and the way that the commodity exchanges tried to have a somewhat orderly change only to fail miserably, what do you think might happen if oil doubled in year's time? More frightening -- what it is was "limit DOWN" every day for the next two weeks giving back ALL its recent gains and more...

It might be interesting to predict how either of those scenarios impacts housing.

[Anthera]

Originally Posted by chet everett

The drift is getting worse...

Times like this it is often helpful to try to remember what I have just been reflecting on -- cycles.

35 years ago the country faced some challenges under a Fed Chairmen that I doubt is remembered by more than a handful of people: Arthur F. Burns. Under his reign the gold standard went quietly into the dustbin of history.

I have no allusions that having that system was somehow perfect, but I do think that there is some evidence that we are facing a new monetary standard: black gold, Texas tea, Saudi serum. It has worked its way into the speculative markets, we are addicted to it in too many ways.

If anybody can remember the snail like pace of the silver horde built up by Hunt brothers and the way that the commodity exchanges tried to have a somewhat orderly change only to fail miserably, what do you think might happen if oil doubled in year's time? More frightening -- what it is was "limit DOWN" every day for the next two weeks giving back ALL its recent gains and more...

It might be interesting to predict how either of those scenarios impacts housing.

I agree with you about cycles.

However, one of the problems with the price of oil is that its price no longer reflects simple supply and demand. Because of the uncertainty in the financial markets, more funds are choosing to hold hard assets. Until this uncertainty is reduced, oil will continue to climb.

When the Hunt brothers (but not Lamar), pulled their silver squeeze, the exchanges actually changed rules an applied tham retroactively(or as the exchanges said - clarified rules). I don't know what else they could have done.

I hope that whomever is elected is able to deal with our economic situation. It won't be easy.

[TimtheGuy]

As for interest rates, wrong again.

ahh...which part was wrong??

[TimtheGuy]

Originally Posted by fairmarketvalue

No problem, you have your opinion, and I have mine. I think I wrote this post almost 2 weeks ago. Regardless, We are not, nor have a we ever been desperate sellers. The real estate threads explain our situation in more detail so won't go into it. As for being in denial- we sold, since this post, that home we were so "desperate" to sell, (listed since March 24 of this year) for roughly 2% below asking. All my posts explain a much different scererio for the more affluant suburbs of Chicago, as prices are down, yes, but not in record #s as compaired to the national averages and lately, although inventory is a little high (also not nearly as high as some of the nations areas in trouble), it's starting to move and prices are staying still, for the most part. Still firmly believe it is a good time to buy, if you want to. Doesn't mean you have to, just as long as it's not because the national "doom and gloom" is saying so, which would be a shame. Anyone this easily persuaded, as it seems you are, are not probably the potential buyers in a normal market either. Bargain hunters are always hoping things get worse; it might actually give them the opportunity to buy in any case where they would not normally have been able to. As for interest rates, wrong again. 2mo. ago, we could have re-fied our new home for 5.5% but couldn't becasue we hadnt' sold the previous home. We are locked on the new home @6.5%-30fix for the primary loan(jumbo) and the bridge loan will be paid off after we close on the previous home in 7 weeks. But on the off chance that you are right on this one, good, we'll re-fi instead of re-casting the primary loan. And you know what's really scary? That these comments are even being made in reference to mortgage rates. I remember our first home as adults, in 1988, and the interest rates on our $168,000 dollar home was 12.99%. OMG, how did ANYONE afford, let alone get financing approved, for a home back then? And OMG, how is there any real estate left, 20 years later? OMG!

"OMG"...the same way they do now. Higher rates just mean less buying power. You were the one preaching that rates were going to shoot way up. No where in my posts did I say that rates were going to go up or down.

Since it sounds like you easily qualify for both properties, why was it you couldn't refinance until your current home sold/closes??

"easily persuaded"...ya right. If that were true, surely your posts would have persuaded me to beleive that the market had bottomed and that buyers better get in asap.

By the way I am not a buyer sitting on the fence hammering sellers. I am a mortgage lender, so I would CERTAINLY prefer that things were leveled out and activity was back to normal. However, I am a realist and a tell it how it is type of guy. I am in MN, so I would say/think your market is not all that different than ours. I would sum up our market as "people are staying put."

Hopefully your buyers have A+ credentials so there won't be any problems come closing time.

[fairmarketvalue]

Originally Posted by TimtheGuy

"OMG"...the same way they do now. Higher rates just mean less buying power. You were the one preaching that rates were going to shoot way up. No where in my posts did I say that rates were going to go up or down.

Since it sounds like you easily qualify for both properties, why was it you couldn't refinance until your current home sold/closes??

"easily persuaded"...ya right. If that were true, surely your posts would have persuaded me to beleive that the market had bottomed and that buyers better get in asap.

By the way I am not a buyer sitting on the fence hammering sellers. I am a mortgage lender, so I would CERTAINLY prefer that things were leveled out and activity was back to normal. However, I am a realist and a tell it how it is type of guy. I am in MN, so I would say/think your market is not all that different than ours. I would sum up our market as "people are staying put."

Hopefully your buyers have A+ credentials so there won't be any problems come closing time.

OK, a mtg. broker, I get it now. Then you should know that with 2 homes, since last Oct. which involved 1 mrotgage on the previous home, 2 on the existing (1st primary and 2nd bridge), and a temporary 90% until the other home sold/closes, we were not in a position to re-fi until we reposition the loans on the new house(pay down with more cash). As a mortgage broker, you should understand why this is. Our second will be paid , in full, after we close on the other house and the primary (jumbo) either has the ability to "re-cast" and stay where it is (6.5%), which means not having to go through re-fi process, OR if interest rates are worth it, a re-fi, we'll probably do, but it would have to be about a whole point less(5.5) to be worth it, and I don't see rates being this low when we close 6 weeks from now on the other home. There is NO DOUBT that having 2 homes for the last 8mo. has not been cost effective, but always knew it was short term as we will take the equity/profit from our previous home and put it towards the one we built and live in now. Hope this explains.

As for interest rates and where they will go? Another point in case. I have believed and said they will go up which is why I think it adds another point to the arguement of buying NOW, not a year from now. Many who are still in the position to do so, will not be, in a year, if interest rates force them to get less of a house than they can now. How could it NOT be a good time to buy with interest rates going up? I hate to burst anyones "bubble" but house prices, at least here, are not going to drop and significance close to what this forum predicts and the when someone wants that $500,000 house in the nice community with good schools and can't because interest rates are 10%, they did, indeed, miss the boat.

Our buyers do, thankfully, and are just your typical tranferees, moving to a great area, financially sound, and 30% down on the home. All is good, and I happen to believe there are many more of this type that have kept the real estate market at what it's for- home buying and family living. That's your typical american, apple pie, run of the mill, kind of buyer/seller. It's the only type we have ever been in our 20+ years of buying homes. I think there are a lot like us around. By the way, we love MN. Our family used to vacation at a resort outside of Detroit Lakes and many, happy memories there! I think your market will fair well, as ours has, in this difficult time for other states in our nation.

[Humboldt1]

FMV,

If interest rates go up, it will only lead to further declines in home prices. This is simple supply/demand economics. Fewer buyers will be able to afford a certain priced house and this will create even further downward pressure on prices.

Interest rates may reach 7-8% tops in the next couple of years, not 13% like you paid in 1988. Most analysts are forecasting rates to be in the 6.5% range + or - 50bps.

[Lookout Kid]

Increasing interest rates will also reduce the demand for mortgage-backed securities (since regualr bonds will be more appealing again to investors), which in turn will reduce the number of mortgages that banks are under pressure to sell, which will in turn lead to tighter lending restrictions, which will in turn reduce housing demand. So higher interest rates work to reduce the number of buyers from both the banking side and the home price side.

Of course, this assumes that investors haven't already dumped their mortgage-backed securities en masse... And without the easy bundling of sub-prime mortgages to sell to Bear Stearns and the like, banks have no reason to be free and loose with lending standards.

[chet everett]

Modest rise in rates will effect mostly marginal buyers. I happen to think some people make better renters than over leveraged "home owners", I suspect that feeling is going to spread.

In my analysis the folks that are committed to homes in higher prices and more established communities would rather commit more income to their homes -- better to forego hitting the "home equity piggy back" to get a boat, luxury car or other well known depreciating assets. Renovating will make more sense than "moving up". Communities far out in the fringe will take the brunt of "increase commuter costs" hitting housing values.

There is a lot psychology tied up in this too. I might be very wrong and people might not give a damn. The media masters of inflation might very well talk the idiot hordes into laughing about paying $40 for a Quarter Pounder, or whatever "green" non-meat alternative McDonalds is bullied into selling. Boomers might happily torpedo their excess home value to spite their ungrateful Gen 'whatever' offspring.